Ron: You bring up lots of things. As usual, mine in ***'s.
<< Personally, I think we should have set up catastrophic tariffs on some of these bastages... However, given the fact that we were in the middle of a "cold war", recovering from vast expenditures in Vietnam and the social burdens of the Great Society, I don't think we had much choice. >>
*** The real problem with the US in that era is that it clearly spent beyond its means and racked up huge debt and printed tons of fiat which was to bite with a vengeance later on. The gold standard wasn't the culprit - Nixon had to cut off all semblance of a standard if the government was to survive. Just another illustration that the GS was doing its job - government wasn't! ***
<< As for Fiat currencies going to Zero, that usually accompanies the respective gov't going to Zero as well, (ie: conquest or overthrow).
In that case, currency backed by gold would be worthless anyway as the rule of law breaks down and with that, the ability to pursue legal claims against those who are obligated to exchange your currency for gold. >>
*** You make a good point there - score one for Ron, however I wonder if you've seen where these examples logically lead. There can be three ways I can see in which a fiat currency can die: 1) the government can create too much of it, 2) the government can be overthrown, or 3) it can lose a major war and be conquered. In case #1 it frequently happens that when a currency is fully devalued by market forces and excessive paper, the government is usually replaced or overthrown and a new currency begun anyway. This is the most frequent example I've encountered in my study of history. I have yet to come across an example of a healthy fiat currency issued by a government that is suddenly overthrown or loses a major war and is toppled. You may say that it's trivial that all fiat systems die because all governments die but I'd submit that most governments bring on their own death through excessive paper production.
Your point about the breakdown of the rule of law is pertinent but not an indictment of a gold standard. All uses of money whose standards and quantity are regulated by government would break down in the "nuclear scenario."
All you're bolstering by this discussion is the idea that governments shouldn't be in charge of regulating money or storing it exclusively, for everyone in that country. It could be privately stored and publicly regulated for quality. That way governments won't have the option of dying and taking their constituents with them. You won't need to have contracts honored in the country in which the government fails. Just move out of this country into one in which the rule of law is maintained and continue your financial existence. The only catch is you have to pick and choose between many different storage locations. Switzerland comes to mind as a safe haven.
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<< As for your general concepts about the gold standard, if what you say is true about unlimited opportunity for expansion under it, why the h*ll have so many govt's left it? >>
*** I said that there can be an "unlimited opportunity for [wealth] expansion" in the context of an example which illustrates that you don't need an increasing supply of gold to have wealth expansion, just as, in theory, you don't need an increasing supply of fiat either. The point there is that wealth expansion is not the accumulation of an ever greater number of money units (gold, dollar, quatlu, whatever) but an increase in purchasing power. For instance, you could have 1 dollar yesterday and 2 dollars today, but if today's dollar only buys 1/10th of what it did yesterday, you've lost purchasing power even though your nominal dollar amount increased.
Governments leave gold standards because they don't want to be chained to financial responsibility - it's that simple. ***
<< Why has there been such financial chaos under the gold standard, such as the The Great Deflation, a myriad of banking panics throughout its history, ESPECIALLY the Great Panic of 1907, when the Federal Gov't had to step in and bail the banking system out, and the constant inability to wage war under such financial constraints?? >>
*** Even Alan Greenspan brought up the point that in the late 1920's, the financial bubble was brought on by government printing too much fiat beyond what it owned in gold. In that case, the gold standard was circumvented. I don't know enough about the panic of 1907, but I understand the earthquake of 1906 and the consequent draw upon credit had some bearing on it. Do you have a good reference in mind?
In the Panic of 1837, it was fiat and speculation over public land sales, primarily related to canals. When Jackson enforced the "Species Circular Act" panic ensued. That was a clear example of what you're apparently concerned about - a case of fiat creation cut off by an enforcement of a precious metal discipline. Andy Jackson hated the banks and was harsh!
In 1873 it was all the fiat created during the Civil War coming back to roost that was the culprit for the crash. ***
<< Countries have fled the Gold standard when involved in periods of conflict, and while it would be nice to have gold bring the end of warfare, we know that is not a practical solution. >>
*** I'm not advancing the argument that a gold standard would end warfare. I think that's naive. However I think it would curtail a lot of aggression if fiat wasn't an option. Again, all I'm advocating is honest finances - if a war is the will of the people then finance it through taxes and bonds. What's the harm in that? The only harm might be to prevent a state act of aggression on its neighbors if such an act is not supported by the general electorate. ***
<< And while your statistics may be correct about the dollar devaluation since the '50s, I think most of us can attest that we have alot to show for it economically and technically. But then again, you had the ability to turn those dollars into gold if you wished. (Hope you did so...:0) I personally haven't felt that inflation, except in equities... <VBG>. >>
*** What you're saying is true only in a limited sense. If one were smart enough to invest in good stock through this period, he would have enhanced his wealth, but how many could pick and choose correctly? The most important point is this - under a fiat system there's always a drain on profits, always inflation, always boom and bust. Why put up with this drag on an economy? Without a fiat system, we'd be a lot wealthier, on the whole. ***
<< Btw, would you contest the statistic that corrected for inflation, that the price of oil is cheaper than it was during the '60s?? >>
*** No, it's quite true, and its a tribute to technology and also a consequence of the Asian crash. But again that's typical of fiat economies. Boom and bust occur because of fiat creation. That's the great lesson of the Austrian School of Economics. ***
<< And finally, you claim that new technology should be financed based upon its profitability. hmmm.... I can think of many technologies that require(d) substantial capital, both VC and debt, as well as gov't subsidization in their infancy. >>
*** Yes, different industries require capital to varying degrees, but in a healthy gold-standard economy, one without distortions brought on by the boom/bust cycle, inflation, and malinventment of capital, there's more profit to go around. You don't need any more capital than what's available as assets in the general population. There's plenty there to go around. The world today, in the fiat system, barely taps into half of the capital available for productive endeavors. Much of it is saved passively by widow and orphan types. ***
<< Semiconductors, Rocket science, Jet Airliners, satelite communications, medical research... etc were all developed under conditions where short-term oriented corporations were unwilling to commit long-term investment capital to these programs when the risk/reward equation didn't fit their business plan.
There is a place for gov't, just as there is a place for the private sector creating economic expansion. >>
*** That's where you have it backwards, because it's the fiat economy that produces shorter investment horizons with its business cycles of boom/bust. If we had a stable monetary environment to work within, there would be plenty of long-term capital available from the private sector. ***
<< But the root of the debate is still that so many of you have blinders on about the true value of a gold standard. If it had been so GREAT in the first place for all involved, ESPECIALLY THE FINANCIERS, they would have remained on it. >>
*** The financiers that set up the Central Banks and the King's banks before them were puppets of their governments. They're bribed off - it's that simple. Just look at JP Morgan, Chase, Citigroup, all those guys. The rest are bamboozled by the official Monetarist/Keynesian mumbo jumbo chaff/disinformation campaign to realize what's going on. ***
<< The Gold standard is a myth... It may be a useful myth for it to retain some value in the eyes of inflation conscience investors and as a means of forcing restraint on Fed Governors and politicians, but it is still a myth.
It's history is as stained by inflation/deflation, bank runs, and currency collapses as Fiat money has. >>
*** Your statement is myth. You still haven't shown one instance in which a gold standard alone is responsible for any of the financial difficulties you mention. Sure, if an alcoholic is made to sober up and goes through the DTs, is this affliction blamed on the sobering up process? Of course not! The problem is with the alcohol and the need for this person to have it. So, instead of allowing government, the perpetual alcoholic, a "fiat drink" why not just prohibit him from using it in the first place? After all, we the people are his parents! We lay the law down!
Clearly you haven't faced the truth after being shown the OVERWHELMING EVIDENCE IN FAVOR OF A GOLD STANDARD. There's nothing productive a fiat currency can do that a gold standard can't do. If so then NAME IT. Waging war isn't one of them, as you could just as easily wage one on bonds or taxes. Financing productive endeavors isn't one of them either, as each is equally capable.
And you can't deny that there are drawbacks inherent in a fiat system that aren't inherent with gold. That should be abundantly clear.
The drawbacks in gold are small, just market fluctuations of 1-3% based on supply. ***
<< The key element in any financial system is that there exist IN THE MINDS OF PEOPLE that there is a standard, physical or mental, that will provide them some means of comparing and analyzing the appreciation or depreciation of their real assets as proxied by currency.
Those suffering inflation in Asia and Latin America are fleeing to a safe harbor and it ain't gold. It's the dollar. And with the dollar gaining strength (regardless of equity prices), it will remain the final safe harbor until economic contagion overtakes us or a financial shock to the system occurs (such as a short squeeze in gold).
This money flying into the US is taking the diversified form of investments in equities and bonds and possibly real estate. Were the dollar's value to be destroyed, that diversified portfolio would be reduced and the only option would be gold, which would result in a gold bubble. >>
*** An economic disaster will overtake us, you can count on it, it's only a matter of time. The best evidence is a comprehensive look throughout history. No government has been able to escape the gravity of a fiat system. It's inevitable - governments abuse them and are then avenged by inexorable economic laws.
In fact, the ONLY reason for the existence of a fiat system, is as an instrument of government to subvert the normal laws of economic accountability. It does no good for general society to have such a system. Furthermore, it's no coincidence that gold has persisted through the centuries as a life preserver of wealth, as all fiat currencies have returned to their inevitable happy hunting ground from which they were born. Gold will only be useless once a more suitable life preserver is found, if such a medium exists.
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